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While many in the startup community—both founders and funders—tout a focus on disruptive innovation, the structure they provide is counter to promoting disruption in a number of ways. Lean is focused on incremental improvements, not bold changes and ideas. Customer Development emphasizes testing and refinement with early adopters, not those that would be “disrupted” typically. And ideas get funded based on metrics and a model that proves rapid scalability. Disruptive technologies are, by nature, not rapidly scalable. Because they are disrupting something that was stable, it takes time for them to diffuse.
Reorienting Through Meaning
In their analysis of radical and incremental innovation, Norman and Verganti present some frameworks to evaluate the relationship between the two. In doing so, they break down innovation into two dimensions: technology change and meaning change. In one framework, they map these two dimensions to incremental and radical change, illustrating how these connect to what they consider the drivers of innovation: technology, design, and users. In a second framework, they then link these types of innovation to the role of research, building upon concepts from Donald Stokes’s work on Pasteur’s Quadrant. They characterize their quadrant in terms of the “quest for a novel interpretation of meaning” and the “quest for practicality.” The resulting analysis highlights roles of research in each of the four quadrants.
Taking this framework as inspiration, I have applied similar thinking to the types of innovation in startups— from both product and process perspective. I connect the type of product innovation change with the innovation process focus on diffusion (Figure 1). The product dimension, on the Y axis, focuses on the degree of change: low is incremental, high is radical. The process dimension, on the X axis, shows the degree of widespread diffusion—low or high. This yields four quadrants, illustrating four types of startup innovation: the do-it-yourself (DIY) or maker movement innovation, Lean Startup innovation, vision-driven startup innovation, and disruptive innovation. I briefly explain them below, but will delve into more detail regarding the three main quadrants of interest in the next section.
- DIY or maker movement innovation. Innovation in this quadrant for the most part is incremental, building on technologies that already exist, and by nature, DIY products are not intended to be widely diffused. While this is an interesting and important emerging area of innovation, it is not generally relevant to the types of scalable startups I will be discussing through the rest of this paper. As such, I briefly mention it here, but will not go into further depth.
- Lean Startup innovation. This quadrant is where the majority of startups I have studied lie. For reasons related to funding, which I will delve into in more detail later in this paper, they focus heavily on diffusion a priori. And while many, if not most of these startups profess to aim for disruptive innovation, the nature of the Lean process is such that they must focus on incremental change.
- Vision-driven startup innovation. This quadrant if where a much smaller minority of startups are situated. Chief among them are startups who have a strong vision they are pursuing, without following processes like Lean and Customer Development, or teams that have developed a new technology, but are unsure what it can be used for more broadly.
- Disruptive innovation. This is the quadrant that the most successful startups reach. They have created a radical change through technology or meaning, and that change has been adopted and diffused widely.
While I have separated these into rather discrete categories here for the purposes of defining them, they are most certainly not separate, mutually-exclusive categories for startups. Rather, they are spectra along which types of startups can loosely be pinned at one point or another. But, importantly, movement within these dimensions is fluid and malleable. That is to say, it is entirely possible that a Lean-focused startup or a vision-driven one could ultimately become disruptive. What it depends upon, as Norman and Verganti explain at length in their paradigm, is a change in meaning.
In their analysis of different approaches to design research, the authors argue most forcefully for the power of design-driven research to enable radical innovation through “envisioning new meanings that are intended to be applied in products” (2014, p. 29) And the study they provide as their grand example is one aimed at creating new knowledge about meanings of kitchen products. While advocating broadly for this focus on meaning, they also readily admit that, as an approach to innovation, it has not been well studied. They suggest better understanding can emerge through: “research and observations rooted in more general socio-cultural changes, as an understating of how society and culture are changing.”
To an ethnographer, these topics and aims of research sound quite familiar. However, while Norman and Verganti do begin to touch on promising directions to do such work, it is focused on testing out lateral design alternatives, not deep, interpretive research like ethnography. They do in fact mention ethnography in passing—but as a method for incremental human-centered design research, not the meaningful research for which they are advocating. However, their aim is on design research, while here my aim is broadly on innovation in startups. And in startups, I do believe that ethnographic research could be an integral piece of the puzzle in driving meaning for startups, and helping them reach their goals of radical change and diffusion. But, moreover, ethnographic methods could be a valuable, influential asset in reshaping the venture capital sector that controls the startup sphere and largely determines which innovations have a chance to succeed. In the following sections I will highlight, in turn, how ethnographic approaches can aid startups in finding new paths by uncovering and shaping meaning, and how they can make new paths in the startup sphere by infusing meaning into venture capital practices
PATHFINDING IN STARTUP INNOVATION
A Pathology of Startup Innovation
A Lean Methodology – Through my experience and close examination of startups and innovation, an underlying thread that connects many of them is a focus on Lean Startup. Lean methodologies, based primarily on Eric Ries’s works on Lean Startup (2011), still form the core of the practices most Silicon Valley startups— and some enterprises— purport to follow. The work centered on Lean Startup helped spur a startup mania around the globe; it was the first model put forth to describe startup creation as a science and has become dominant in the startup sphere.
The concept of Lean traces its roots back to manufacturing. Lean Production, a term coined in the 1990s at MIT, was initially used to describe the Toyota Production System (TPS) (Holweg 2007). TPS is a socio-technical system that combines a distinct management philosophy and practices. According to the Toyota group that teaches the system, it is based on four core principles:
- put the customer first;
- the most valuable resources are people;
- a focus on the workplace itself; and
- kaizen, meaning “good change” in Japanese, which Toyota uses in the context of “continuous improvement” as a philosophy.
TPS describes itself as “a culture of problem solving at every level of the organization,” and the necessarily skills are learned by doing, not by concept. Following from Lean Production, others have borrowed the term to emphasize a focus on reducing waste and on continuous refinement, although the term is often confused with meaning small teams or low monetary cost.
The term Lean Startup was coined by Ries, who had experience with Agile Development as the Chief Technology officer of IMVU, a 3D social network. Through IMVU, he met Steve Blank, an entrepreneur and investor who created the Customer Development framework. In exchange for investment in IMVU, Blank required Ries to enroll in Blank’s entrepreneurship class at UC Berkeley. Ries was heavily influenced by the course and combined his experience with Agile with Blank’s methodology to create a continuous deployment concept that is heavily influenced by TPS. He primarily focused on two key concepts: Customer Development (Blank & Dorf 2012) and continuous deployment (Maurya 2012).
Lean Startup is thus intended to be a model of innovating rooted in experimentation and rapid iteration. The entire product development cycle is about building a hypothesis, testing, learning, and iterating on it. Using the Build-Measure-Learn framework, a startup theoretically can focus on reducing the time and labor involved in developing the product. In analyzing complexity, fast iteration almost always produces better results than in-depth analysis (Sessions 2006).
The Minimum Viable Product (MVP) is the bare minimum product (or non-technology-based experiment) a team can build to use and test a number of assumptions. By testing this with early adopters, startups can continue to iterate, using Agile development practices such as Scrum or other Kanban (a signboard/scheduling system) principles to conduct short product development sprints. The form of the product may change throughout the Lean process, but the intention is that motivation and overarching vision of the team should remain intact, that is, unless experimentation disproves assumptions. In that case, they pivot. That means they change their focus or strategy based on these learnings. This is where Lean fits into the larger Customer Development framework.
Customer Development is essentially the startup version of user research. Steve Blank, who started Customer Development has defined a startup “[as] an organization formed to search for a repeatable and scalable business model” (Blank & Dorf 2012). His conceptual practice, Customer Development, focuses on this goal and includes four distinct phases: Customer Discovery, Customer Validation, Customer Creation, and Company Building. The first two phases, Discovery and Validation are in a loop, and only when customers are “validated” does the loop breaks off into a linear progression of Customer Creation and Company Building. The process is half of the Lean Startup methodology and parallels the hypothesis-driven Lean Startup approach. The Build-Measure-Learn cycle is centered in the first two phases, and emphasizes validation. Validation is a significant event, although it perhaps gets less and less significant to the core value of the business as iterative cycles continue to improve peripheral aspects. A key event that Lean processes create is forcing a pivot. The team moves into an entirely new direction strategy-wise. Pivoting requires drawing insight from data collected from experimentation, both quantitative and qualitative, and then building a new hypothesis. The methodology also popularized terms like Problem-Solution Fit and Product-Market Fit, creating common startup languages for entrepreneurs, investors, and stakeholders (Blank 2013; Cooper & Vlaskovits 2010). In short, these processes are very focused on incremental improvement, and also oriented toward mass-diffusion.
Beyond Design Thinking – While Lean processes are still dominant, other approaches, particularly from design thinking, have begun to be spread more broadly in the startup community. Design thinking is rooted in combining the context of the problem and empathy—in many ways, not dissimilar from what Customer Development preaches. However, the philosophy and the approach are more grounded in data. This grounded-theory approach provides a structure for patterns to emerge; it allows innovators to arrive at conclusions based on observations early. Thus it sets the stage for alternatives to be examined and experimentation and metrics to be used in a valuable way. In a complex environment, this allows experiments to be more focused on producing understanding, which Anderson et al. suggest is key: “the system is now too complex for a prior [sic] comprehension and thus the product launch is itself an experiment about order or arbiter of order” (2013).
As I have suggested before, combining elements of Lean and design thinking seems to have potential for startups (Haines 2014), and others have noted the potential synergies of these approaches (Müller and Thoring 2012). Lean focuses more closely on business value while design thinking focuses more on developing the right product for the end user. Together, they are useful in terms of thinking about how to provide value for both stakeholders and users at the same time.
But while some “design thinking” methodology has started to make inroads in early stage technology startups, there seems to be much more to explore in terms of approaches. And in particular, it seems we need to go beyond the simplistic tool-based discussions. For startups, it is important to consider other practices that are not currently mainstream within the startup world. As Norman and Verganti suggest, a key to pursuing radical innovation seems to be in conducting research that helps interpret what is meaningful to people—or what could be meaningful. It seems that ethnographic approaches—and ethnographic thinking, as Hasbrouck has articulated (2015)— are uniquely suited to help teams understand meaning and shape meaning through new technologies or business models. In other words, ethnography is well oriented to support disruptive innovation through developing and asking the right questions, pursuing ongoing inquiry, and providing rich interpretations.
Great article 🙂 I’m concerned about this phrase though :”…and allows them to lock in high levels of personal income, even if they fail to return investment capital to the limited partners who invest in the fund (Mulcahy et al 2012)”
Carriest interest is only earned by GP/VCs when the fund they are managing, performs above mere investor capital return, hurdle included.,(hurdle being the investors (LPs) minimum expected return in terms of IRR ( Internal Rate of Return)).
So no VC can earn carried before having started to make a profit, unless there is a flaw in the fund’s LPA (Limited Partnership agreement)